Campbell v. Plant Health Intermediate, Inc.

Background

Nicole Campbell, as the “Seller Representative,” brought a diversity action against Plant Health Intermediate, Inc. (“PHI”). Campbell alleged that PHI breached an October 19, 2018 Equity Purchase Agreement by failing to make a post-closing earn-out payment and that she was entitled to attorney’s fees for enforcing the agreement.

PHI answered and asserted counterclaims against Campbell. It also attempted to assert six “crossclaims” against Clare Reinbergen and Rupert Campbell, who were not parties to the lawsuit. PHI’s challenged counterclaims alleged breach of the implied covenant of good faith and fair dealing (Counterclaim II), fraud and fraudulent concealment (Counterclaim III), and unjust enrichment (Counterclaim IV). PHI’s other counterclaims, including its breach-of-contract claim and attorney’s-fees claim, were not challenged in this motion.

PHI alleged that, after the sale, it discovered that information about Growth Products’ dealings with the Environmental Protection Agency and the termination of a 401(k) plan had been concealed or misstated. PHI also alleged that Rupert Campbell continued collecting rent from subtenants after PHI assumed the relevant lease.

Motion and governing standards

Campbell moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim, and Rule 9(b) as to the fraud allegations. She also argued under Rule 13(g) that PHI could not bring “crossclaims” against people who were not parties and had not been joined.

On a motion to dismiss, the court accepts well-pleaded factual allegations as true and asks whether they plausibly support a claim for relief. The court considered the Equity Purchase Agreement because it was integral to PHI’s pleading and both sides relied on it.

Analysis

Claims against non-parties. Federal Rule of Civil Procedure 13(g) allows a crossclaim by one party against a co-party when the claim arises from the relevant transaction or occurrence. The court held that Reinbergen and Rupert Campbell were not co-parties because they were not parties at all. PHI had not joined them under the procedures available for adding parties before attempting to assert claims against them. The court therefore dismissed all six “crossclaims” as procedurally improper. It expressly did not decide whether any claims might have survived if those individuals had been properly joined.

Counterclaim II—implied covenant. The agreement provided that matters arising out of or relating to it would be governed by Delaware law. The court applied that provision to PHI’s claim for breach of the implied covenant of good faith and fair dealing.

Under Delaware law, this covenant can supply an implied contract term when needed to address an unforeseen development or fill a gap, but it cannot be used to change the parties’ express bargain. PHI did not identify a specific implied contractual term. Instead, its counterclaim relied on alleged violations of express provisions of the Equity Purchase Agreement, making it duplicative of PHI’s breach-of-contract counterclaim. The court dismissed Counterclaim II.

Counterclaim III—fraud and fraudulent concealment. The court also applied Delaware law to the fraud counterclaim because it related to the Equity Purchase Agreement. Under the rule applied by the court, a fraud claim cannot proceed alongside a contract claim when it is based on the same conduct covered by the contract, unless the fraud involves conduct separate and distinct from the breach.

The court found that PHI’s allegations about the Environmental Protection Agency, the 401(k) plan, and related representations or omissions were covered by express representations and warranties in the agreement. The agreement also contained a sole-remedy provision directing claims relating to its representations, warranties, covenants, and obligations to its indemnification provisions, subject to stated exceptions. The court concluded that PHI had not based its fraud claim on separate conduct. It also found that PHI was not pleading fraud as an alternative theory based on uncertainty about the agreement’s existence: PHI’s answer treated the agreement as valid, and PHI did not seek rescission. The court dismissed Counterclaim III and did not reach whether the fraud allegations satisfied Rule 9(b)’s particularity requirement.

Counterclaim IV—unjust enrichment. The court applied Delaware law to the unjust-enrichment counterclaim. Unjust enrichment is a quasi-contract theory that may provide a remedy when no formal contract governs, but it is unavailable when a contract governs the parties’ relationship concerning the alleged benefit. Because PHI did not raise a factual dispute about the existence of a valid agreement, the court dismissed Counterclaim IV.

Disposition

Judge Philip M. Halpern granted Campbell’s partial motion to dismiss. The order dismissed all “crossclaims” against Reinbergen and Rupert Campbell. It also dismissed Counterclaims II, III, and IV against Campbell under Rule 12(b)(6), leaving Counterclaims I and VII against Campbell intact. The court directed Campbell to answer the remaining counterclaims within 30 days and instructed the Clerk to terminate the motion.